Monday, October 6, 2008

We Need Capitulation!

Good evening folks!

What a day today. Talk about a roller coaster. Lets take a look at a chart:






My take:

Whoa! Watching the market today was exhausting. For awhile there when we were down almost 800 it looked like the gate of hell were about to open up. Unfortunately, the DOW rallied back from the lows to settle down 370 points.

This is bad news for the bulls not the bears folks. You would think that the opposite would be true, but not in this type of market. Technicians explain that panicky markets like we find ourselves in right now do not find bottoms until you see capitulation selling on very high volume.

You need a complete washout with investors all running to the exits at once. Many technicians like Art Cashin were very disappointed by the rally on the close today.

Not only did we not capitulate, we sold off on relatively low volume of about 400 million shares. As you can see above, we have already had one day where 600 million shares traded on the DOW in September. The same problem was seen in the other indices like the S&P.

One of the problems that the market has right now is there are very few bids for stocks. No one wants to touch the market right now until things settle down. As a result, the market is vulnerable to violent unpredictable moves based on rumors and speculation/day traders.

The market popped this afternoon based on speculations that a global coordinated rate cut was in the works. Yeah, like that's gonna happen. The countries in the ECB alone can't agree on what do do with rates let alone the whole world. The Fed and the ECB also have two different mandates. The chances of a global rate cut are slim to none IMO.

Bottom Line:

We still aren't trading on fundementals. Expect the volatility to continue to be high with a downward trend until we see a "blood in the streets" selloff thats needed in order to stop the bleeding.

Keep an eye on the financial news. Bernanke and the world leaders are extremely panicked right now. Expect continued intervention into the world markets as they attempt to right the ship. I am keeping my trading to a minimum at these levels because we are both extremely oversold, and highly vulnerable to unpredictable shoe drops and stick saves.

You are pretty much gambling going long or short here IMO. You cannot "invest" in this type of market. Stay on the sidelines until the VIX(fear) drops and the volatility settles down before taking new positions.

I have never seen a market like this ever. It's certainly fascinating to watch!

24 comments:

John Maynes said...
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ZMonet said...

I think I understand exactly what he is saying. There is so much volatility in the market that unless you trade without stops then you could realize large losses. Even if you trade without stops, there could be a short-term game changer, like coordinated rate cuts or something similar. Remember, in the Great Depression there was a very large bounce back where the DOW got back to around 300 before crashing all the way down to 44 by a year later. Is there money to be made? Yes, but at great risk and at this point you would be little more than gambling.

Jeff said...

Exactly Zmon

Short term volatility can wipe out your account.

It could be weeks until capitulation occurs. Taking new bets in oversold conditions hoping for capitulation is not the best of bets.

I have some long term short positons that I will continue to hold.

John Maynes said...
This comment has been removed by a blog administrator.
johndaniels said...

I believe everything you said. I was on the phone this morning before I visited your blog and told her "we need capitulation.." its funny that all the intelligent blogs are all basically coming from the same "mass mind" relizations. There is something here, and its truth...not the crap they spin on MSNBC etc. they're even trying to call a bottom here, lol. On what? Why would someone invest, and with who? the only ones in there are the compulsive gamblers. I think the rally must have been short covering. I was disappointed by the comeback too; but it means whatever recovery rally we always get the "day after" will be dilluted. im am just watching the tanking oil prices very closely here, and even looked at POT. going to wait.

Jeff said...

JD

Thanks.

The financial TV stations are crazy aren't they?

I am listening to Kudlow right now trying to bring "goldilocks" back from the dead.

Its gonna be a long time until this market turns bullish long term.

I agree with the short covering rally. A lot of day traders covered and went long when we were down 800.

The investors are sitting on the sidelines right now. The only people left playing the markets are a bunch of daredevil traders and hedge funds.

Its like the wild wild west. lol

Avl Guy said...

Hey Jeff, I’m back.
Finally cleaning up your 'neighborhood', eh?
Good stuff post again. You know my position on the over-valued Dow and S&P [shoulda stayed down today], asset deflation and debt unwind so I guess I wasn’t missed last week.
Going off topic now....We are STILL having a gas problem here; most stations today were opened tho many pumps remain wrapped in plastic. Since Hurricane Ike in TX, we've had at least two 24-hr periods where not a SINGLE gas station in the city limits had gas, ditto, for a fat chunk of the 4-county 370K-person metro. Long lines, fights or cuss words and panic tears.
Now I'm also monitoring how Charlotte, 100 miles east, is tag-teamed whacked with the Wachovia Free-4-All and IMO the inevitable departure of King Ken Lewis and his Royal BofA Court (its exec payrolls) to the throne room awaiting him on Wall Street.
They of course are in denial in Charlotte that he will leave.
Ive learned a lot about how citizens, and local leaders & biz owners, alternate between denial & inaction & panic when it comes to 1) severe energy shortages and 2) facing the loss of your economic lifeblood. Charlotte's is its banking payroll. Asheville's is gas-dependent tourism whose greatest revenue season is right now - the Fall leaf color season, which entails - what else - gassing up a car, driving 100s of miles to view color changes on 4,000-6,500-ft peaks, gassing up more & driving more.
And we still have gas stations closed-off by yellow tape?? Economic death by a thousand pin pricks might be more humane.
So lucky me, I am living & witnessing three historic events: the meltdown of Wall Street, of Charlotte’s banking payrolls and of Asheville’s gas-dependent tourism.
Maybe I’ll get a book deal outta my notes.

teddy (roaring) bear said...

Uhh.. yeaaahhhh

Wicki-wild wild
Wicki-wicki-wild
Wicki-wild
Wicki-wicki Wild Wild West

:D

http://www.youtube.com/watch?v=n_a-HZbxmCE

Jeff said...

avl

Yeah cleaned things up a little around here. Welcome to the internet!

Wow tough times in NC eh? God what will Charlotte do without banking. Maybe that will be the next Detroit? Its dangerous when your throw all of your resources behind one industry.

Are you able to get gas somewhere down there? Thats crazy! I have hardly heard anything about that. Good luck with everything.

My sister wants to move to Asheville. Maybe thats not a good idea!

switching topics myself

Anyone notice the Nikkei dropped below the DOW tonight? It actaully dropped into the 9k+ level down 5%. I think its down only 350 right now.

The race to 5k. Who wins Japan or America?

Crazy times aren't they?

Jeff said...

Teddy

Don't forget your 6 shooter if you decide to jump in the snake pit tomorrow!

johndaniels said...

seriously, commodities prices are all screwed up; clearly under government jurisdiction. go ahead and try to buy an ounce of platinum bullion right now. go on, i dare ya! you cant. there aint any! i just bought a slew of platinum dimes, I figure eventually this stuff is going to correct severely upwards. I really like silver prices now too,...again, no bullion, except $5 plus over spot. So these prices are manufactured and do not reflect the true market, as you say avl, oil/ gas too. I think its all a manipulation to keep commodities down so "they" can grab 'em up dirt cheap. gold isn't, but the others are. paper assets are worse than ever now.

Jeff said...

JD

I agree with you on metals and oil. Whats difficult to determine is how much of this is liquidations by the hedge funds for redemptions.

Oil broke support today technically. We also have a global deflationary recession which could take prices lower.

Tough one JD

Good luck. I have a sticksave feeling about tomorrow.

It looks like the Fed might try to use the CME to clear CDS trades in an attempt to loosen up the credit markets.

Lots of rumours tonight. The Fed seems willing to try anything and seems to be in a panic.

Tomorrow should be interesting.

The Log Chopper said...

When bulls are on their knees begging for mercy and the bears are beating their chests in victory...

When there's blood on the streets and people swear the markets are never going to go up again...

That's when we'll reach bottom and experience the market reversal.

Jeff said...

Log

Totally agree. I think we are getting there but we are still not there yet.

Futures reversed into the red this morning when the Fed announced more TAF auctions.

I think the market was expecting some type of sticksave.

Lets see if they come out with something later. Today is a potential bounce day because we are way oversold.

Jeff said...

Not a whole heck of a lot going on this morning.

I will have something up later after Bernanke's testimony.

Europe continues to blow up. RBS=ugly!

The Log Chopper said...

Jeff,

I take a more drastic belief than most. I still don't think we are even close to market bottom. I think the market will "chill out" for a little while and go back up to around 11,000, and then the big leg down will start... all the way down to 6,000 or 7,000.

I really do think the market will go down that far! And, I think the final week of downward movement (before the reversal) will be huge... maybe 2,000 points negative in one week.

Jeff said...

I agree Log

Thats my thesis too. I actually went flat this morning on my trading account except for a few small position in short fund that I have held since DOW 14k.

I expect a massive Fed response to this mess which I believe will fail miserably.

It looks like they plan on injecting capital into companies while also buying short term commercial paper in an attempt to loosen up the credit markets.

This could fuel a short term rally so I decided to get out of the way short term.

Things look to be shitting the bed again so maybe that wasn't a good idea! It can never hurt to take profits though.

I was up 30-40% on my positions and that Bear Stearns rally still haunts me..lol

Lets see what the market does in response to the FED minutes and Bernanke's speech.

Jeff said...
This comment has been removed by the author.
Jeff said...

FYI

The comments section will now be moderated going forward.

There may be a delay in seeing your posts if I am not at my computer. They will be posted immediately if online.

I apologize for the delay, but I need to do this in order to keep the integrity of the board and keep the looney tunes outta here.

J

ZMonet said...

I took the lead of some of the rest of you and closed out my position on QID at the close today. I figured being up 25% in two and a half days and the fact that I really do think this market is way too volatile to trade.

Jeff, It sounds like you have a trading account (as do I), but for your retirement account(s) (i.e., 401(k), TSP, or whatever) have you moved those into securities or are those still in the stock market? What about the rest of you? I'm just wondering how long-term bearish you guys are.

I extended my lease another year today. With this newest downturn, I can't see real estate coming back in VA/DC/MD for some time. I'll end my lease at the beginning of 2010 and hope that interest rates aren't through the roof, or if they are that housing has been hammered down.

Anonymous said...

Jeff, we are waiting.... LOL

teddy bear said...

Chain od fools ;)

http://www.thedeal.com/newsweekly/features/chain-of-fools.php

Jeff said...

Its comin..lol I had a busy day. Always happens when the market tanks!

Avl Guy said...

zmonet, I took 90+% of my retirement out of equities in May, and disciplined myself to re-evaluate that decision every 90 days. By May it was clear that Nourial Roubini's scenarios were far more likely to unfold than not, and that Mish's Deflation thesis was on spot; a double-doomsday long-term for equities.
My 'inner-idiot', though shrunken, is still evident in the almost 10% I left in equities. Im also sitting on my play money after a goofy ride with RIMM & GOOG in Winter.
My line of work is greatly affected by Roubini's & Mish's thesis. I am & will remain exploring ways to design special-use public-private commercial projects to be compatible with the funding 'solutions' pushed by the next administration, so I'm focusing my brain cells on trajectory scenarios for certain real estate & labor markets based on Roubini and Mish Shedlock ideas.